Fewer than half of the schools that applied for renovation under the government's privately financed school building programme have been successful, it has been announced.

The education secretary, Michael Gove, said just 261 schools out of 587 that applied would be rebuilt or refurbished under the £2bn PFI scheme, despite widespread concern about the state of school buildings.

A survey for the Observer revealed 39% of headteachers believed their school buildings were not fit for purpose, with complaints of overcrowding, leaking ceilings and poor ventilation.

Gove admitted the manner in which he cancelled Labour's mammoth school building programme had been "clumsy and insensitive". Within weeks of coming to power, the coalition scrapped the £55bn Building Schools for the Future project, saying it was wasteful and bureaucratic.

More than 700 school building projects were cancelled and Gove was forced to apologise after errors on a list of affected projects meant some schools thought their building work was going ahead when it had in fact been halted.

Speaking on BBC Radio 4's The World at One on Thursday, Gove said: "I think it was necessary to stop the Building Schools for the Future programme because it wasn't efficient, even if the way I made the announcement was clumsy … it was insensitive, and more than that, it left people in a state of uncertainty because they were led to believe by the previous government that schools desperately needed to be rebuilt and were left high and dry."

The government announced the scheme to rebuild the most dilapidated schools, the Priority School Building Programme, last July. The deadline for applications was mid-October.

The announcement of successful bids has been delayed for months, while a baby boom has put intense pressure on space in primary schools. An east London council is drawing up plans to convert an empty Woolworths store into a classroom and teach children in two shifts as part of emergency measures to cope with the rising number of primary age pupils.

In a statement, Gove said rebuilding work would begin immediately and the new schools would be open in 2014.

"I recognise many of the schools that applied and have been unsuccessful will also have significant needs. Some will have their needs addressed through other funding we have made available for maintenance," he said.

The government has commissioned a survey of the school estate which will detail the condition of every school in England by next autumn.

There are 42 schools – those in the worst condition and all the special needs schools in the programme – that will be fast-tracked for urgent building work.

Gove's statement added: "I know many schools will be disappointed not to be included in the programme. We have had to take difficult decisions in order to target spending on those schools in the worst condition."

PFI, which involves private contractors paying upfront for schools and hospital buildings, then leasing them back for up to 30 years, has become increasingly expensive since the financial crisis.

Gove said the Department for Education was working with the Treasury to reform the PFI model and provide "cost-effective and more transparent" delivery of services. Under the school rebuilding scheme, schools will manage and control services such as cleaning, catering and security.

Traditional PFI deals involve the automatic bundling of services such as cleaning into construction contracts. This has been criticised by the Treasury for failing to deliver value for money.

Unions are concerned staff lose out on pay and conditions when such services are contracted out.

Nusrat Faizullah, chief executive of the British Council for School Environments, an education charity, said: "It's great to finally see some schools, at least, will be replaced or refurbished.

" It's also good to see that schools in the very worst condition will be fast-tracked."

"But this only is a beginning. Hundreds of schools have lost out after being told by the previous government their schools will be rebuilt; they too must have their building needs addressed."

Steve Beechey, head of education at construction firm Wates, described the statement as "light on the detail" of how the new school buildings would be procured and the timeframes involved. "Given that it typically takes at least two years from the time a decision is made to build a school until it is ready to open, it is essential that the government swiftly follows up today's announcement with more information on how it intends to prioritise projects for delivery."

In the same interview, Gove denied the closure of grammar schools was responsible for a decline in social mobility. He said: "Selection isn't a magic bullet. If you look across the worldat those countries that have successful education systems, yes, some of them are selective, like Singapore. Others, Finland, South Korea, Japan, aren't.

"So it's not the case that you need to have selection in order to have a successful education system which advances social mobility."

He added the decline in social mobility had more to do with progressive teaching methods and softer subjects in state schools. "In fact there were other changes occurring in education - a move away from traditional subjects rigorously taught in many cases. It would be wrong to look back at the 60s and 70s and say that the move away from grammar schools was the sole cause of adverse changes."

The 200 schools are:

Barking and Dagenham

Eastbrook Comprehensive School

Eastbury Comprehensive School

Barnet

Pardes House Primary School

Birmingham

Castle Vale Performing Arts College

Hallmoor School

Heathlands Junior and Infant School

Kings Norton High School

Plantsbrook School

Turves Green Boys' School

Blackpool

Collegiate High School

Hawes Side Primary School

Highfurlong School

Palatine Sports College

Bradford

Belle Vue Boys' School

Carlton Bolling College

Oakbank School

The Samuel Lister Academy

Brent

Alperton Community School

Copland Community School

Bristol

Hillfields Primary School

St Anne's Park Primary School

St Ursula's E-ACT Academy

Bromley

Harris Academy Beckenham

Harris Academy Bromley

Bury

The Elton High School

Cambridgeshire

The Manor

Camden

Hampstead School

Maria Fidelis Convent School FCJ

Cheshire West and Chester

Blacon High School

Crowton Christ Church C of E Primary School

Dee Point Primary School

Highfield Community Primary School *

J H Godwin Primary School

Neston High School

Coventry

Alice Stevens School

Ernesford Grange Community School

President Kennedy School

Richard Lee Primary School

St Thomas More Catholic Primary School

Whitmore Park Primary School

Wyken Croft Primary School

Croydon

The Archbishop Lanfranc School

Cumbria

Southfield Technology College (joint application with Stainburn School and Science College)

St James C of E Junior School

Stainburn School and Science College (joint application with Southfield Technology College)